ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

ACCOUNTING POLICIES

ACCOUNTING POLICIES

Basis of Presentation

We prepare our unaudited interim Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States ("GAAP"). We consistently applied the accounting policies described in our 2020 Annual Report on Form 10-K ("2020 Form 10-K") in preparing these unaudited interim Consolidated Financial Statements, other than those impacted by new accounting standards as described below. On January 3, 2020, we completed the Agreement and Plan of Mergers with Natura Cosméticos S.A., a Brazilian corporation (sociedade anônima) ("Natura Cosméticos"), Natura &Co Holding S.A., a Brazilian corporation (sociedade anônima) ("Natura &Co Holding"), and two subsidiaries of Natura &Co Holding ("Natura &Co") pursuant to which, in a series of transactions (the "Transaction"). Upon the consummation of the Transaction, the Company became a wholly owned subsidiary of Natura &Co Holding; and Avon's common stock ceased to be traded on the NYSE. The Company files these unaudited interim Consolidated Financial Statements with the SEC as a voluntary filer to comply with the terms of certain debt instruments. For additional information, see Note 17, Agreement and Plan of Mergers with Natura Cosméticos S.A.

In our opinion, the unaudited interim Consolidated Financial Statements reflect all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results for a full year. You should read these unaudited interim Consolidated Financial Statements in conjunction with our Consolidated Financial Statements contained in our 2020 Form 10-K. When used in this report, the terms "Avon," "Company," "we" or "us" mean Avon Products, Inc.

For interim Consolidated Financial Statements purposes, we generally provide for accruals under our various employee benefit plans for each quarter based on one quarter of the estimated annual expense, and adjust these accruals as estimates are refined. In addition, our income tax provision is determined using an estimate of our consolidated annual effective tax rate, adjusted in the current period for discrete income tax items including:

•the effects of significant, unusual or extraordinary pretax and income tax items, if any;

•the impact of changes in tax legislation, if any;

•withholding taxes recognized associated with cash repatriations; and

•the impact of loss-making subsidiaries for which we cannot recognize an income tax benefit and subsidiaries for which an effective tax rate cannot be reliably estimated.

Sale of Avon Luxembourg Holdings S.à r.l

On July 1, 2021, the Company sold Avon Luxembourg, including our Mexican business, to a subsidiary of Natura &Co Holding for $150, with the proceeds used to repay maturing loans of $150 borrowed under the $250 Revolving Credit Facility with a subsidiary of Natura &Co Holding.

The sale was accounted for as a transaction under common control in accordance with ASC805 - Business Combinations, with the resulting gain of $148, representing the difference between the proceeds, the net assets of Avon Luxembourg on the date of sale, and the cumulative foreign currency translation adjustment, taken directly to Retained Earnings. This has been treated as a non cash flow item in the Consolidated Statements of Cash Flows. For additional information, see the Consolidated Statements of Changes in Shareholders' Deficit and the Consolidated Statements of Cash Flows.

COVID-19 Pandemic

We continuously monitor the evolution of the COVID-19 pandemic in the markets in which we operate, acting to minimize impacts on operations and the equity and financial position. Management is implementing appropriate measures to ensure the continuity of operations, protect cash, improve liquidity and promote health and safety for all stakeholders.

During the third quarter of 2021, most markets in Avon International and many markets in Avon Latin America continued to be impacted by COVID-19 restrictions which resulted in deceleration of the Beauty market growth and a lower representative base. It is unclear if current lockdown measures will continue or be reestablished elsewhere globally which could dampen our recovery from COVID-19.

Considering this scenario, we review the recoverability expectations of our financial and non-financial assets in the preparation of this interim accounting information, considering the most recent information available and reflected in the Company's business plans. In the nine-month period ended September 30, 2021, no deterioration in the Company's liquidity, cash position or leverage that could impact compliance with financial covenants and short-term commitments was identified.

See also “Item 1A. Risk Factors — The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, manufacturing, supply chains and distribution systems, and we have experienced and expect to continue to experience unpredictable negative effects associated with the pandemic" included in Item 1A of our 2020 Annual Report.

Going concern

Considering the uncertain nature of any possible future COVID-19 impacts which are beyond the Company’s control, we might expect some negative impact on revenue from COVID-19 to continue for the remainder of 2021, which will, in turn, result in lower cash generation from activities. If the downturn is deeper or for longer than we anticipate, the Company could take certain further actions to ease the pressure of certain cash outflows, such as reducing discretionary expenditure, selling non-core assets, accessing government pandemic initiatives or arranging borrowing facilities with third-party banks and affiliate companies. Our projections indicate that we should have sufficient liquidity to meet our obligations to parties other than Natura &Co and its affiliates for a period of not less than 12 months from the issuance date of the Consolidated Financial Statements. The Company has received an irrevocable commitment from Natura &Co Holding that it will provide sufficient financial support if and when needed to enable the Company to meet its operating and financing obligations as they come due in the normal course of business for a period of not less than 12 months from the date of the issuance of the Consolidated Financial Statements. This support also includes the loan originally issued by a subsidiary of Natura &Co Holding to a subsidiary of the Company of $960, part of which was repaid in July 2021 with the proceeds from a loan maturing in 2028, with the balance now due on November 2, 2022. As a result, the outstanding loan balances due to subsidiaries of Natura &Co Holding on September 30, 2021 stood at $149 maturing within one year, $206 maturing in November 2022 and $767 maturing in 2028.

Accounting Standards Implemented

ASU 2019-12, Simplifying the Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU 2019-12"), Income Taxes, which is intended to simplify the accounting standard and improve the usefulness of information provided in the financial statements. We adopted this new accounting guidance as of January 1, 2021. The adoption did not have a material impact on our Consolidated Financial Statements.

ASU 2020-04, Reference Rate Reform (Topic 848)

In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022.

The Company has implemented a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR and, as a result, has elected to apply the optional expedient included in ASU 2020-04 to account for modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, to be accounted for by prospectively adjusting the effective interest rate.